Borrowing with credit cards surges

Consumers boosted their borrowing in May, mostly reflecting heavy credit card use to finance their purchases.

The Federal Reserve reported Tuesday that consumer credit increased at an annual rate of 3.6 percent in May, roughly the same pace as logged in the prior month.

The pickup pushed total consumer debt up by $7.78 billion, to $2.57 trillion.

The increase was led by much stronger demand for revolving credit, which is primarily credit cards. Use of revolving credit rose at a 7.1 percent pace in May, a month in which a flow of tax rebates helped to energize consumer spending. In April consumers cut back on such credit at a 0.5 percent pace.

Still, the longer-term trend shows that consumers have been charging more of their purchases on credit cards as banks have tightened lending standards on other types of loans.

"Consumer spending was so large in May that consumers used their income tax rebate checks and brought out the plastic as well," said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi in New York. "This double-dipping approach cannot keep the consumer afloat forever."

Demand for non-revolving credit used to finance cars, education and other things, meanwhile, slowed to a 1.6 percent increase in May. That was down from a growth rate of 6.1 percent in April and was the slowest since December.